How to prepare financial statements for a nonprofit board

If you are a bookkeeper for a nonprofit organization, the focus your job is to present information in a useful form to the organization’s management. What information should be prepared and how should it be presented? The simple correct answer is ‘however the board says’. But it often is not so simple.

The problem is that many smaller nonprofit boards do not know what financial information to ask for or even how to evaluate financial reports. This article lists a summary of nine suggestions that may help with that aspect of the job.

1) Follow chain of command

In most organizations the bookkeeper reports to the organization’s Treasurer, who passes it on to the other board members and managers. Sometimes the Treasurer preauthorizes information to be released on a regular ongoing basis. Be consistent with following this practice of chain of command. If you receive a request from a manager or another board member, ask them to make the request through the Treasurer. There are situations like suspicion of mishandling, where a bookkeeper should report to another person like the president. Those cases are not discussed here.

2) Prepare a complete set of statements

In most cases a complete report should include at least three financial statements even if the organization does not specifically request it. The titles of these reports may vary but the set should include some form of a balance sheet, revenues and expenses statement, and a cash flows statement. Each organization may customize the list of specific statements that make up the management report.

3) Use comparative statements

Use financial statements that include results from prior period results to boost the value and understanding of financial information for users. Don’t be afraid to mix it up. For example, year-to-date comparison statements are valuable later in the year but it is better to use trailing 12 months when preparing a January report.

4) Include external components

If payroll is handled by a separate entity, consider whether you should include the payroll report. If a payment processor is significant, consider including that transaction report. Each organization may have a different list of important and relevant reports.

5) Include a bank statement

The simple but most useful tool for a nonprofit board to meet its requirement for financial stewardship is to match the bank balance on the financial statement with the balance on the bank account statement. Include at bank statement as confirming data to add assurance to the balance sheet you prepared.

6) Consider security and privacy

Financial reports may contain sensitive information. The nonprofit should have policies that address this, including restrictions on use stated on each report, redaction, or other appropriate measures. However the execution of this, including using professional judgment, rests with the bookkeeper.

7) Let technology do the heavy work

Today’s cloud-hosted accounting system allows the bookkeeper to custom design reports for each user and control exactly. The reports can be automatically sent on a schedule, or each user can log on to read the report on this own schedule. This automatically creates a log of all views or usage of the company’s financial data.

8) Use the financial policy statement

Every well-run nonprofit organization should have a written financial policy statement. If yours does not, push them to adapt one. Use it when preparing the financial reports.

9) Use an engagement agreement

A best practice is to summarize all of this in a written engagement agreement.